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The government has selected a clean-technology investment company
as its first partner in an effort to support innovation and job
growth in areas deemed "critical" and a "national priority" like
low-income regions, clean energy and education. And Citi has
stepped in as the lead private investor in the deal.

The U.S. Small Business Administration announced yesterday that
it had selected SJF Ventures III, a venture-capital firm
with offices in New York, San Francisco, and Durham, N.C., as
its first national Impact Investment Fund partner. SJF
Ventures picks companies involved in reuse and recycling,
sustainable agriculture and food safety, among others, to
invest in.

The Impact Investment Fund is a program launched as part of
Startup America, the White House’s
public-private partnership, which aims to drive $1.5 billion
in small or startup, fast-growth companies over the next five
years. The SBA will invest $1 billion towards the effort and
the rest will come from private investors. The targeted areas
of investment for the Impact Investment Fund are either
low-income regions or in the clean-tech and education sectors.

And due to certain advantages of the SBA program, more venture
capital firms may want to follow suit, driving up the amount of
funds available to small, fast-growth businesses across the
country.

The Impact Investment Fund’s first location-based partnership was
in Michigan, and the SJF Venture III deal is its first
sector-based partnership. In Michigan, the SBA partnered with the
State of Michigan and The Dow Chemical Company, among others, and
together, the partners will provide up to $130 million of
investment capital over the next five years to businesses in the
state. In the Michigan Impact Investment, the SBA’s $80 million
contribution will have to be repaid.

"SJF Ventures III, LP is yet another important new ally in SBA’s
commitment to foster small business growth and job creation in
emerging sectors," said the government agency’s chief,
Administrator Karen Mills, in a statement released yesterday. The
idea is to get money in the hands of small businesses that will
really drive job growth.

As part of the partnership, SJF Ventures III did not want to take
on any government capital. The impact investors that are selected
to participate in the SBA's program can choose, depending on
their needs, whether it makes sense for them to accept capital
from the government. Instead of taking on capital from the SBA,
SJF Ventures III opted to be licensed as a Small Business
Investment Company, or SBIC, a designation that required the firm
to go through a significant application process.

Though the vetting process is arduous, the SBIC designation does
provide investment firms significant benefits. For instance, it
gives banks an increased sense of confidence in the institution.
Citi’s community lending group, Citi Community Capital, led the
investment in SJF Ventures III. "You are more attractive to
potential bank investors" once achieving the SBIC status,
explained Sean Greene, the SBA Associate Administrator for
Investment, on a conference call with reporters.

Also, having the SBIC status makes firms more attractive to bank
investors because any investments automatically qualify as
Community Reinvestment Act Credit. The Community Reinvestment Act
requires banks to make certain amounts of investments in their
communities according to federal regulations. And finally, a
particular section of the Dodd-Frank Wall Street reform and
consumer protection legislation called the "Volcker Rule" will
make it such that, when fully implemented, banks cannot invest in
private funds. SBICs, however, are exempt from this rule.

SJF Ventures III aims to raise $75 million for its Impact
Investing fund, but it has not yet reached that full amount.
However, the company is ready immediately to invest in companies.